The Dark Side of the Salary Ban

Lately, there’s been a lot of press and reporting regarding the movement to make asking about a prospective employee’s current or past salary history illegal – also known as the Salary Ban. The primary idea is that this will reduce the wage gap, specifically for women as well as other protected and non-protected classes.

The theory behind the salary ban is that organizations will have to pay based on what they believe that someone is worth, not based on their current salary. Ideally, this practice will level the playing field, as the offer presented should be the same for a man, woman, or any other demographic that is discriminated against.

Although I don’t disagree with the premise, I have to ask: have we really thought the salary ban law through? Sometimes, legislators pass laws that end up being modified or ripped apart because of the unforeseen consequences that the law creates–even when they have only the best intentions.

Low-balling everyone

This past week, I became privy to a situation that is occurring in California–one of the first states that have banned both public and private employers from asking about a candidate’s pay history. Given that organization’s cannot ask for historical information, they’ve made it a policy to offer all candidates the lowest end of any salary range. The thought process is that if they start low, the candidate will offer up their current salary to drive a better compensation package.

We’re not going to argue the legalities of this practice as I’m not an attorney. I’m simply stating that there are consequences for every action and law that we make. In the case of this employer, out of 5 recent offers, 4 candidates freely shared their compensation history. The fifth offer was declined because the candidate was insulted and wouldn’t even make a counter-offer.

Now, there’s currently no law (that I know of) in asking about salary expectations. I believe in each of these cases, the corporate recruiter or HR professional had that conversation with the candidate. Even so, the policy was still followed to start with the lowest offer first.

Missing part of the picture

As you move up the ladder, compensation becomes a bit more complicated. Equity in lieu of cash, bonuses in lieu or base, etc. Potential candidates could be sitting on equity worth 6 or 7 figures and when you get to the offer stage, this non-cash comp butts them out of range — wasting their time and the organization’s time interviewing them.

I would hope that candidate’s at a senior level would offer this information up from the beginning, however, many don’t. Without being asked questions or having to show data to support their past compensation, could it open up candidates to mislead, exaggerate, or even downright lie about their comp?

There’s no doubt that the gender wage gap needs to be addressed. Candidates should be compensated based on their value, not their gender, ethnicity, etc. But, is there a better way? Are these laws a band-aid that will open up other challenges and issues as organizations and hiring leaders try to protect themselves and their budgets?

Having been an entrepreneur for my entire career, I 100% subscribe to the theory that you need to create value to get paid and that you pay your team based on the value that they provide. Governing what you can and can’t use during compensation negotiations can actually put both parties on the defensive. Does the best solution involve holding back on one of the key criteria for a job? Maybe or maybe not–only time will tell.